Atomistic Ownership and Opportunistic Trade Credit Provision

We study the effect of supplier firms’ atomistic ownership structure on trade credit provision. We find that atomistic-shareholder (AS) firms, which are characterized by the absence of a controlling family shareholder, provide more trade credit than matched firms controlled by founding families. This effect is driven by manager-specific rather than firm-specific effects. We establish causality using a difference-in-differences analysis around the 2008 financial crisis. We identify one channel through which AS firm managers benefit from excess trade credit provision: they are more likely to be hired by their past customers after leaving their current firms. Our results are consistent with the agency conflict hypothesis that AS firm managers provide excess trade credit in exchange for personal benefits. Overall, we uncover a dark side of interfirm trade credit along the supply chain